Investor Protection and the Transfer of Corporate Control: A Cross-Country Analysis
38 Pages Posted: 10 Jan 2007 Last revised: 30 Oct 2008
Date Written: October 29, 2008
In this paper, I use a sample of completed control transfers for listed firms from 1990 through 2003 to examine the relation between investor protection and the choice of acquisition form across 49 countries. I find that the proportion of partial acquisitions (as opposed to full acquisitions) is negatively correlated with the degree of investor protection in the target country. That is, acquirers are more likely to bid for a fraction of the target's equity if legal protection of investor rights is poor in the target country. My results hold for all deals and deals that involve foreign acquirers. In addition, I find that foreign acquirers are more likely to be involved in partial acquisitions than in mergers of domestic targets if they are from countries with weak investor protection. Finally, my results show that given the degree of investor protection in the target country, a deal is more likely a partial acquisition if the target firm's corporate governance is poor.
Keywords: Investor protection, Partial acquisitions, Mergers, Private benefits of control, Information asymmetry
JEL Classification: G34, G38
Suggested Citation: Suggested Citation